Reddit takes aim at Google and Facebook with help from China

Chinese tech giant Tencent is the newcomer in this fourth round of funding, investing $150 million and joining prior investors in the company.
Image: Key Speakers At The Sooner Than You Think Technology Conference
Steve Huffman, chief executive officer and co-founder of Reddit Inc., speaks during the Sooner Than You Think' conference in the Brooklyn borough of New York on Oct. 16, 2018.Alex Flynn / Bloomberg via Getty Images file

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By Julia Boorstin, CNBC

What do California's Democratic Sen. Kamala Harris, Toyota, Charles Schwab and Jordan Peele's new movie "Up" all have in common?

They all turned to Reddit to deploy ad campaigns and connect with consumers. The social network's growth in popularity with a broad range of advertisers has attracted new investors and is driving up its valuation.

The company announced Monday it has raised $300 million at a $3 billion valuation. That's up from a $1.8 billion valuation when the company took in $200 million in investment in 2017.

Chinese tech giant Tencent is the newcomer in this fourth round of funding, investing $150 million and joining prior investors in the company that include Sequoia, Fidelity, Andreessen Horowitz, Quiet Capital, VY and rapper Snoop Dogg. With this financing, the company says it plans to expand internationally and grow its ad platform, targeting the market dominated by Facebook and Google.

Reddit CEO Steve Huffman sat down with CNBC for an interview to discuss the financing and what's next for the company.

"One of the things that's been very important to us is that we can now assure advertisers that you are going to have a positive experience on Reddit and potentially even a new experience, a new way of connecting with customers," Huffman said. He said Reddit's commitment to advertisers is to make that connection "free from abuse and other kinds of misbehaving."

Since Reddit was founded in 2005, it has drawn criticism and concerns over abuse, harassment and piracy on the platform. But Huffman said the company has invested in better technology to catch abuse and better tools for its users to report it.

The tools are working, he said. Reddit has grown its appeal to advertisers with 330 million monthly active users, half of whom are between the ages of 18 and 24, a valuable, hard-to-reach demographic. While the company won't reveal its revenue, it brought in more than $100 million last year.

"We are reinventing the ads business, both on the technology side and our ability to sell it and to create a friendly home for users and brands alike," Huffman said. "So we've made steady progress on all of these fronts over the last year, and we feel pretty proud of where we are. And as a result we are seeing a lot of attention from both brands and investors."

Tencent's investment is notable. Not only is Reddit blocked in China, but the platform is also known as a bastion for free, unedited speech. But the investment makes more sense considering that Tencent is an investor in some of the video game companies that drive conversations on Reddit. Tencent owns 40 percent of "Fortnite" creator Epic Games. Tencent is also a big investor in another social service banned in China. The company became Snap's largest shareholder in late 2017, and currently owns nearly 15 percent of the public company.

"They are investors in lots of video games companies," Huffman said. "And video games are one category that's really popular on Reddit."

"We are the only company at our scale that's still a private company, so we've had a lot of investor attention in the last year. So we found ourselves in a good position to get something done right now," Huffman said.

Now, with this additional financing, Huffman said he hopes to take a piece of Facebook's and Google's massive market share in online advertising.

"When we are talking about competing for ad dollars, of course we are talking about Facebook and Google, who take up the vast majority of ad spend." He said that when it comes to competition for consumers, "We are competing with anybody, or anywhere people spend their free time."

One key to growth, Huffman said, is making the Reddit website, which can be cluttered and hard to navigate, easier for newcomers to access.

"When we think about internationalization, obviously that's our largest opportunity for user growth," Huffman said. "We still want to get the fundamentals of Reddit working perfectly in the U.S., where we understand the language and the culture, and I still think we have opportunities to do better there."

Reflecting on a year dominated by negative headlines around Facebook and on Reddit's own work to make its platform safe, Huffman said Reddit's growth is predicated on eliminating the kind of abuse that can alienate users and brands.

"We've learned many lessons over the years, and one of the most important ones is that user safety and trust is extremely important," Huffman said. "We've also seen in the last year how challenging things can be if you don't get that right and how high the stakes are. We do believe the stakes are increasing."

CORRECTION (Feb. 11, 2019, 1:52 p.m. ET): A previous version of this article misidentified one of the investors in Reddit's fourth round of fundraising. Quiet Capital invested, not Tacit Capital.